Innovative Employee Compensation Methods To Motivate Employees David Westman Executive compensation is hot.

Compensation consultants and the variety of program packages they offer are increasing exponentially. In contrast, regular employees are getting shafted when it comes to compensation issues. These non-executive workers feel ignored and frustrated as they see the gap between executive and employee compensation widen with each passing year. Yet, it is these people who make up the bulk of the work force and collectively contribute the most to company success. Several trends indicate a need for more focus on employee compensation. These include: A continuing shortage of qualified professional, technical and administrative employees. A growing need for employees who are multi-skilled and adaptable to change. A decreasing level of long-term commitment by employees (i.e. employees are much more willing to move around to meet their career and lifestyle preferences). An increasing need for balance between work and other facets of life. Despite these trends, many companies continue to offer employees the basic compensation package that has been around for years: base salary, traditional benefits like health, welfare and retirement, and perhaps a profit-sharing plan. Are there alternatives to consider? Absolutely! Unfortunately, many top managers lack both the time and the creativity to take advantage of numerous other compensation vehicles that drive performance improvement and build employee morale and commitment. These vehicles are not necessarily expensive. In fact, some of the most effective ideas involve minimal or no cost. During the course of research, I identified over 100 low-cost or no-cost programs which have been used successfully by companies. Following are examples of programs that tie directly to employees performance: Time Off Surprise: Give Supervisors a bank of days and/or afternoons off that they

can reward to staff on the spot for meritorious service. Variations of this program include handing out $20 bills or lunch coupons. Of the employees Ive surveyed, 68% believe this would improve staff performance and morale. Behind-The-Scenes: Recognize employees yearly or periodically who are not usually in the limelight. An alternative, the Good Tries program, involves recognizing employees who take risks, regardless of whether those risks result in failure or success. More than 70% of employees surveyed support implementation of these programs. Cash For Ideas: Periodically hand out index cards and ask employees to record ways the company could save money. Pay a nominal amount (like $3 per idea). If the idea is implemented, pay an additional $25 or 10% of the savings whichever is greater. The Poster Ideas program is somewhat similar. It involves hanging poster board at key locations within the company. Written at the top of each board is a problem that needs solving. Anyone can write their ideas in the space remaining on the poster Travel Expense Gainsharing: Create a program for employees who save on travel; for example, allow them to keep half the cost difference between their choice of hotel or transportation and the companys standard. I recently took advantage of a similar program myself. One of my clients required me to make frequent trips to Vermont. At $1100, the weekday round-trip airfare cost more than a similar excursion to Europe. By taking advantage of my companys gainsharing program, I arranged to stay the weekend and pocketed half the $750 difference in airfare. I used this bonus to fly my wife out to join me for a wonderful get-away in the height of the colorful Vermont leaf season. The above programs are tied to performance, but employers should also consider nonperformance based programs. One compelling reason is that most employees believe there is a need to find a better balance between work and free time (per a Milliman & Robertson

survey). Organizations which offer incentives to enhance satisfaction beyond the job will benefit from employees loyalty, commitment and future performance. These types or programs enhance recruiting initiatives. The 1993 National Study of the Changing Work Force finding reveal that when employees were asked the most important deciding factors for accepting a job, the effect on personal/family life ranked far ahead of wages. Non-Performance Based Programs These programs also complement post-performance reward programs like those discussed above and traditional incentive compensation plans. Although many employees are motivated by the rewards that good performance often brings, others perform will if they are treated will from the start. Examples of non-performance based programs abound. They include: Core Hours: Give employees flexibility with regard to when they work onsite. For example, all employees could be require to be at work between 10:00 a.m. and 3:00 p.m. Beyond this general guideline, some employees may choose to arrive at 6:00 a.m. and leave at 3:00 p.m. Others may choose to start their day later and leave later. TIPS (Tips for Improving Performance): Offer employees a 15- to 30minute workshop on topics they need to enhance their professional and personal lives. Some topics might include handling difficult situations, goal-setting, dealing with change, nutrition, fitness and recycling. Attendance for these programs should be voluntary. Casual Dress Program: Give staff a casual dress day once a week, during the entire summer, or on a permanent basis. Who would have dreamed years ago that companies such as IBM, Amoco, and Arthur Anderson would let their employees go casual? Yet these and hundreds of other companies of all sizes have joined the casual-dress bandwagon. Employee Discounts for Company Goods: Offer certain goods and services

purchased by your company at cost to staff like gasoline, computers and peripherals, and office supplies. More than 65% of employees surveyed support this type of program. Deserve a Discount Program: Initiate a discount-card program with local merchants, which can result in 10-20% savings to staff on purchases like haircuts, clothing, food and entertainment. More than 80% of employees surveyed supported this. You dont have to be as large as American Association of Retired Persons to initiate this idea. Nearly 20 years ago, while at a small Midwestern college, I started a similar program with 15 area merchants which resulted in 10 to 15% saving to our approximately 2,000 students. SOS (Services on the Spot): Introduce an SOS program which offers employees the ability to run errands at their desks, including any or all of the following: -Dry cleaning pickup and delivery -Shoe shining and repair -Drivers license, auto tag and title renewal -Gasoline fill-up and/or oil change service -Drugstore item delivery -Cafeteria take-home dinners Relationship-Building Programs A third category of ideas to consider to motivate employees and maximize performance are relationship-building programs. These incentives may not be viewed by some as compensation because there is no exchange of cash or merchandise, and no traditional or non-traditional benefits or perks. But such programs encompass a broad set of interactions which build camaraderie, open communication channels and break down organizational barriers all of which are valued by employees and enhance their motivation and performance. The National Study of the Changing Work Force findings cited previously indicate that the most important deciding factor for accepting a job is open communications, which can be translated as healthy working relationships. The same factors that motivate people to start a

job search will likely motivate them on the job as well. Examples of relationship-building programs inlclude: Executive Coffee Breaks: Institute a program where the CEO and/or other top executives meet with all or small groups of staff for an hour or so over coffee. Although the discussion is free-flowing, employees are encouraged to send questions in advance. Nearly 90% of employees surveyed expressed enthusiasm for this idea. Stand By Me: A Chicago-area financial institution sponsors numerous radio advertisements promoting a program in which their executives spend a day outside the bank each year working side by side with their customers. This idea can be equally effective in building relationships internally as executives work side by side with staff. Nearly 70% of employees surveyed liked the concept. Orient the Family Program: Sponsor a family orientation program for new staff which includes refreshments, office tours, a slide or video introduction to the organization and dialogues with top executives. Follow up with family socials throughout the year. Many companies neglect to consider the influence that spouses and other family members have on employee satisfaction. Cooperative Charity Day: Give each department an annual day off to work with a local charity organization. Some organizations, in response to the recent volunteer initiative directed by Colin Powell, have taken this concept a step further. Timberland is giving each employee 40 hours of paid time each year to work with local charities. In addition to the public relations value, such programs build pride in the work force and serve to enhance internal relationships. Special Dress Days: Plan special dress days to promote a sense of humor. Examples might include Ugly Tie/Earrings, Crazy Sweater, Silly Socks, Hawaiian, and/or Halloween Costime Days, Prizes might be given for best costumes. Application Issues Given the multitude of alternative low- or no-cost programs available to motivate, recognize

and reward employees, why do so few companies go beyond the traditional approach to compensation? A primary reason is that executives, supervisors and human resources professionals dont have time to research alternatives. Many also lack the creativity to design or develop new ideas. Even with time and creativity, patience is rare. Like any compensation initiative, low or no-cost programs should not be slapped together. Here are four key principles to consider: 1. Identify the role incentive programs should play in supporting the companys overall strategy and other compensation programming. Examples include base salaries, traditional annual and long-term incentive compensation plans, and traditional benefit plans. The entire compensation package should work together, without competing priorities. 2. Identify as many program alternatives as possible for consideration. Dont just settle on the one or two you personally find appealing. In addition to the ideas presented here, ask your counterparts in other organizations for suggestions. Consultants can certainly offer their experiences working with numerous companies. I also highly recommend the following books as references: o Getting Employees to Fall in Love With Your Company, by Jim Harris o 1001 Ways to Reward Employees, by Bob Nelson o Care Packages For the Workplace, by Barbara Giant 3. Gather input from a cross-section of employees to select new programs. Such feedback may reveal that different programs are more appropriate for different employee categories (e.g., union versus non-union, supervisors versus staff). Action steps to keep in mind are: o Define specific programs to include in a survey. o Identify survey participants and empolyee categories: for example tenure, organizational level, role etc. o Tailor and administer the survey to selected particpants o Develop a presentation format and tabulate survey results. o Conduct follow-up focus groups to clarify and expand upon

survey results. 4. Use a systematic process to finalize program design and rollout. Companies should target no more than five programs for initial development and implementation. Moving forward with too many programs can be overwhelming and result in a lack of focus. It is better to spend time administering a few programs right and then gauging staff reactions. Let experience guide the organization and shape future ideas. Specific action steps to keep in mind are: o Convene a Project Team to establish general guideline for each selected program. o Assign a champion or sponsor accountable for each selected program to: -Draft administrative guidelines -Develop a detailed implementation plan -Assure that all appropriate stakeholders have input. o Utilize a review process which includes the Project Team and top executives. o Develop and implement a communications campaign. o Administer the programs, obtain feedback and finetune the programs over time. Helpful Tips In addition to identifying and implementing organization-wide low- and nocost programs, it also makes sense to give supervisors a list of additional ideas for possible use within their specific work units. Ideas which may not be appropriate for the entire organization may prove highly effective for certain departments and employees. Other guidelines for program development and implementation include: 1. Incorporate variety in program offerings, since what is meaningful to one person may not be meaningful to someone else. 2. Assure broad eligibility for awards. Recognize that staff at all levels contribute to the organizations success. 3. Avoid competitive programs to the extent possible (i.e. dont divide employees into winners and losers.) 4. Reward, recognize and build relationships throughout the year. 5. Allow personal expression by giving employees several reward options 6. Consider merchandise as an alternative to cash awards. Employees might simply use

money to buy groceries or pay the electric bill. With merchandise, employees are reminded of the companys appreciation each time they loot at it be it a gym bag or a VCR. 7. Use your corporate logo when possible. More than 70% of respondents to a recent survey believe that the corporate logo or related symbols add meaning to an award. Summary Companies are not bound by tradition when it comes to compensating and motivating employees. Take advantage of the accumulated experiences of others and internal creativity to craft a new approach to compensation management which employees will value and which will drive performance to new heights. Presented to you by the Iowa Business Network.

1 Creative Compensation Sarah L. Fogleman Extension Agricultural Economist, SE Kansas State University There are many different aspects of human resource management. Some are optional. Some are not. While it may be easy for an employer to put off writing a job description or assembling a handbook, the process of setting up a compensation package is one that every employer has had to go through. Granted, some employers spend weeks or years choosing health insurance providers, doing wage studies, and setting up 401(k)s while others may just pick a dollar figure out of the air and call it finished. No matter how much time and effort is spent in setting up the compensation package, there are three basic principles all employers, large or small, should consider. 1. Send the Right Message 2. Its not about Money 3. Use the Right Carrots Send the Right Message When it comes to employee compensation, most managers are busy asking: What do I have to pay to

.? That is not an easy question to answer. A better question might be: What do I want my compensation package to say? Whether you realize it or not, it is already saying a lot. Child care and health benefits say that you value family. Giving longevity bonuses for employees on the anniversary of their employment with you says that you value employees who stay with the business. Throwing a party at the end of your businesss busy season lets the employees and their families know that you2 appreciate it when your people go the extra mile. No matter what compensation elements you use, they all carry a message. That message is important. It is the principle on which the following two components of this paper are based. Compensation packages can be linked to business structure, employee recruitment, retention, motivation, performance, feedback, and satisfaction. Compensation is typically among the first things potential employees consider when looking for employment. It is important, therefore, to give a lot of consideration to your businesss compensation structure. After all, for employees, compensation is the equivalent not to how they are paid, but ultimately, to how they are valued. Its not about Money Its easy to think dollars per hour when thinking about compensation. But an employer who develops a truly creative and successful compensation package understands that its not about money. Its about meeting the employees needs. One of the biggest mistakes an employer can make is to make a large investment of time or money to initiate compensation elements that his/her employees do not need or want. Successful compensation packages are really total rewards systems, containing non-monetary, direct, and indirect elements all based on the objectives of the employer and the needs of the employees Non-Monetary Compensation can include any benefit an employee receives from an employer or job that does not involve tangible value. This includes career and social rewards such as job security, flexible hours, and opportunity for growth, praise and recognition, task enjoyment, and friendships.3 Direct Compensation is an employees base wage. It can be an annual salary, hourly wage or

any performance-based pay that an employee receives, such as profitsharing bonuses. Indirect Compensation is far more varied, including everything from legally required public protection programs such as Social Security to health insurance, retirement programs, paid leave, child care or housing (Schuler). Employers have a wide variety of compensation elements from which to choose. By combining many of these compensation alternatives, progressive managers can create compensation packages that are as individual as the employees who receive them. Some indirect compensation elements are required by law: social security, unemployment and disability payments. Other indirect elements are up to the employer and can offer excellent ways to provide benefits to the employees and the employer as well. For example, a working mother may take a lower-paying job with flexible hours that will allow her to be home when her children get home from school. A recent graduate may be looking for stable work and also an affordable place to live. Both of these individuals have different needs and, therefore, would appreciate different compensation elements. In a tight labor market, indirect compensation becomes increasingly important. Businesses that cannot compete with high cash wages can offer very individualized alternatives that meet the needs of the people you want to employ. Such creative compensation alternatives are the small businesss competitive advantage.4 Indirect Compensation Alternatives Flexible Working Schedules Elder Care Retirement Programs Moving Expenses Insurance (Health, Dental, Eye) Subsidized Housing Paid Leave (Sick/ Holiday/ Personal Days) Subsidized Utilities Tickets to Events (ball games, concerts) Magazine Subscriptions Boots and Clothing Laundry Service Company Parties Use of Farm Trucks, Machinery Farm Produce / Foods/ Meals Cellular Phones/ Pagers Child Care Use of Farm Pastures and Gardens Ask ten different people what a fair wage is and youll get ten different answers. While there are no hard and fast rules in determining a fair wage, the importance of the task is obvious. Research

indicates that employees expect wages to 1) cover basic living expenses, 2) keep up with inflation, 3) provide some funds for savings or recreation, and 4) increase over time (Billikopf). Discussing wage expectations with employees can help determine what their compensation package should look like. While money isnt everything when constructing a compensation package, it is a large portion of what the package may eventually contain and it may be the only element a potential or current employee may think about when considering other employment options. It is absolutely vital that businesses maintain internal and external equity. Internal equity refers to fairness between employees in the same business while external equity refers to relative wage fairness compared to wages with other farms or businesses. No matter the compensation level, if either internal or external equity is violated, a business will most likely experience employee dissatisfaction and employees will begin to balance5 their performance through a variety of ways ranging from decreased productivity to absenteeism and eventually to leaving the business (Billikopf). So, what constitutes a fair wage? One approach to determining a fair wage is a market survey. These are typically fast and easy ways to establish compensation guidelines for many businesses. A few phone calls to other employers in similar businesses can determine the market value for a specific job (Schuler). Unfortunately, this technique is not necessarily well suited for agricultural producers (Fogleman et al). An agricultural manager can do informal surveys of other agricultural producers to determine the going rate for labor or modify existing studies of nonagricultural businesses to compare employees not by job title but by skill sets. For example, operating a forklift in a factory and driving a tractor may require similar skills and, therefore, can be compensated similarly. Use the Right Carrots While the second principle applies to meeting the needs of the employees, the third principle applies to meeting the needs of the business. A compensation package is one of the most concrete ways in which an employer can communicate the

mission, vision, and values of the business. The benefits and incentives set in place by the compensation package will invoke certain responses from the employees. An employer has to be certain that those responses match the objectives of the business. In other words, the employer has to be careful to use the right carrots. For example, consider a farrow to finish swine operation where the farrowing unit has seen an increase in pre-weaning mortality. To help solve this problem, the owner instigates a bonus system based on6 live pigs out the door. The result: nursery mortality starts to rise as sick and weak pigs who normally would have stayed in the farrowing unit are shipped off to the nursery and, eventually, die. Are the employees of that farrowing unit to blame for the sudden rise in nursery mortality? No. If youre surprised by that answer, think again. Based on their compensation package, those employees were only doing what their managers wanted them to dothey were following the carrots. As Johanna Slan said in Using Stories and Humor, Sometimes we try to fix people when its the system that stinks. So, is it worth the risk? Should an employer instigate some type of performance incentive when there is a possibility that it will only create problems in other areas of the business? The answer is, yes, it is worth the risk. The general consensus of recent studies is that pay should be tied to performance to be effective. The key is in finding carrots that dont send the wrong message and making employees understand how their actions impact the entire business. Successful managers must search for things the employees influence and base performance objectives on these areas. Your operation may benefit from the following: tenure bonuses for long-time employees, equipment repair incentives to encourage good equipment maintenance, or bonuses for arriving to work on time. The more production information data your business has, the easier this is to accomplish. Measures such as feed conversion rates, somatic cell count, or mortality can offer great sources for performance incentives. But, as always, be certain that those incentives send the message that you want your employees to receive.7

Conclusions Agricultural managers face many decisions every day. Finding the time to build and implement an equitable wage structure can be difficult. To make the process easier, consider the following checklist: 1. Decide what you want your compensation package to do. --Recruit new employees --Motivate current employees --Reward well-performing employees --Minimize risk of violating federal laws --Build employee loyalty --Any combination of the above 2. Talk to your employees about their Compensation needs: --Health Insurance --Paid Vacation --Housing --Child Care --Retirement Planning 3. Structure your compensation package based on what your business is about: --Goals --Mission --Vision --Values 4. Implement your new system, remembering to --Communicate with your employees about their needs8 --Review your compensation package regularly. Make sure it is fair, equitable, and competitive. --Be flexible and innovative to maintain a competitive advantage --Maintain both internal and external equity Successful agricultural producers rely heavily on common sense when it comes to management decisions. The area of employee compensation should be no different. If you want your employees to be innovativereward them for new ideas. If you want your employees to stay with you for a long time instead of training new employees every seasonoffer bonuses or tie their wages to their tenure. If you need employees that show up on time, work hard, and can be trusted with the most challenging of tasksrecruit those people; reward those people; promote those people. The future of your business could depend on it. References

Billikopf, Gregory. Labor Management in Ag: Cultivating Personnel Productivity. Agricultural Extension: University of California. Doanes Agricultural Report. Risk Management Education Summit. Volume 60, Number 39-6. September 1997.9 Fogleman et. al. Employee Compensation and Job Satisfaction on Dairy Farms in the Northeast. April 1999. Cornell University, RB99-02. Kansas Department of Human Resources. Kansas Wage Survey: 1996 Edition. April 1998. Rosenberg, Howard. Labor Management Decisions. University of California APMP Research Papers, Volume 8, Number 1, Winter-Spring 1999. Schuler, R. (1998). Managing Human Resources. Cincinnati, Ohio: SouthWestern College Publishing.

Getting your compensation plan to align with corporate CRM goals also means implementing the right plan. Here are four types of variable compensation plans from Compensating the different types of Industry: Gain sharingReward employees for achieving pre-established goalsManagement bonus plansTie compensation plans with performance